In a televised meeting with senior officials, a visibly irritated Vladimir Putin admitted that Russia’s economy had shrunk by 1.8 % in the first two months of 2026. He demanded to know how the “degrowth” could be reversed. That account comes from a commentary by the EU Institute for Security Studies, published in April 2026.
The institute’s analysis starts from a measured premise. Russia’s economy is not yet collapsing, and neither is its campaign against Ukraine. But the Kremlin, it argues, is mortgaging the country’s future as structural weaknesses come to the surface.
Oil money, with caveats
There is some good news for Moscow. The US campaign against Iran has lifted Russian oil export revenues, and the International Monetary Fund has raised its 2026 growth forecast for Russia by 0.3 %, to 1.1 % of GDP. The federal budget was expected to collect USD 9 billion in oil extraction taxes for March, twice the February amount.
The commentary urges caution. Urals oil nearly doubled in price after the campaign began, but from a very low base of less than USD 40 per barrel in February. Exporters also had to offer discounts to major buyers, and much of the oil remained unsold at sea. To meet its annual target of USD 102 billion, the windfall would need to last all year. The US has delayed by another month the reimposition of sanctions on Russian seaborne oil, in an effort to stabilise the market.
The first-quarter deficit reached 1.9 % GDP, or USD 60 billion. That is more than the planned deficit for all of 2026 and double the first quarter of 2025.
Pressure at home and at the front
Interest rates remain high and consumption is falling. Central Bank chief Elvira Nabiullina has warned of a severe labour shortage, with unemployment at 2 %. The institute adds that FSB attempts to “restore order to the internet” have provoked rare public discontent, even tensions within the elite.
On the battlefield, it says Ukraine has regained the upper hand in drone warfare and is inflicting more fatalities on Russian forces. Recruitment is likely slowing, and Russia is starting to struggle to replace its losses. Ukraine has stabilised its front line and seized the initiative around Huliaipole in the Zaporizhzhia region. It also stands to gain from a newly unblocked EU loan that allocates €60 billion to its military needs.
Three paths for the Kremlin
The commentary judges that the regime will more likely than not muddle through, buying time and hoping oil revenues hold. It sees a second option in a sustained ceasefire, which would not mean peace but would let Russia consolidate and rebuild. The darker scenario is escalation: a new, overt mobilisation and a more firmly wartime economy, should Putin decide the window to end the war on favourable terms is closing.
Its advice to Europeans is to work to prevent that outcome by strengthening deterrence and preparedness, while continuing to support Ukraine.
